Conducted by
National Institute for Consumer Education
at
Eastern Michigan University

for
Michigan Jump$tart Coalition for Personal Financial Literacy

Executive Summary

In 1997, a Personal Financial Survey was administered to national samples of 12th graders from across the country.  The testing was repeated in 2000. The 30-question multiple-choice examination, designed by a team of educators, tested students’ knowledge of personal finance in four basic categories: income, money management, saving and investment, and spending and credit.

In the spring of 2001, the National Institute for Consumer Education (NICE) was asked by the Michigan Jump$tart coalition for Personal Financial Literacy to replicate the national survey with Michigan 12th graders.  NICE administered the Personal Financial Survey to 362 Michigan high school seniors.

The results on both of the national surveys and the Michigan survey are not good.  Michigan students performed poorly on the exam, achieving an average score of just 49.0 percent, they also did slightly worse than the national sample of students who completed the exam in 1997 and 2000.  Furthermore, only 12.8 percent scored a “C” or better on the exam (75 percent correct), while 61.8 percent failed the exam (below 60 percent correct).  More Michigan students scored a “C” or better than the national sample (6.7 percent) and more failed the test than those who took it nationally (59.1 percent).

The two weakest areas of knowledge were saving and investing (42.9 percent) and credit (47.2 percent).  Students did slightly better in money management (48.8 percent).  By default, our students did substantially better (although still failing) in spending (52.8 percent) and income (55.8 percent).  Thus, they know how to get money and spend it, but know considerably less about saving or investing their money or how to effectively use credit.

Women did slightly better than men on the Michigan survey (52.2 percent versus 51.6 percent), but considerably more men scored a “C” or better on the exam (5.2 versus 3.5 percent).  

The survey results did point out, however, several areas of student accomplishment that gives us reason for hope and direction for the future.  

Those students who participated in the Stock Market Game, a highly interactive and fun instructional tool, scored better on the survey (52.8 percent) than did students who completed an entire course in money management (47.1 percent) or an entire course in economics while in high school (49.6 percent).  Based on this result and similar results on the national test, one can conclude that highly interactive, reality-based courses in money management – that provide intensive and applied instruction in personal finance – are effective for developing financially savvy teens.  

The study sampling techniques were carefully designed to reflect the diversity of Michigan twelfth graders on racial groups and school size.  However, in this first round of data collection, 80 percent of the respondents were White.  Over-sampling of schools in African-American and Hispanic-American communities will be used when additional data are collected during the fall of 2001.  Extreme differences did exist for students of different racial backgrounds.  White students were much more likely to score “C” or better (8.1 percent), while none of the African-American, Asian-American, or Native-American students scored “C” or better.  

Differences in scores were somewhat dependent upon family income. As family income rose, the students’ average score also rose.  Students with family incomes below $20,000 per year averaged 40.9 percent in contrast to 53.1 percent for students from families in the over $80,000 bracket.  There was also a correlation between educational plans of students and average scores.  Students planning to attend a 4-year college had the highest average score (53.8 percent).  Conversely, those students who planned no education beyond high school did markedly worse on the test (34.3 percent) than did others, and those who plan to do manual work after high school had much lower average scores (24.9 percent) than students planning to enter the skilled trades (37.5 percent), service work (43.8 percent) or professional fields (53.5 percent).  These findings could indicate that more affluent, college-bound students were more concerned than their less affluent counterparts with personal financial survival skills or that they had more education (in school or at home) about financial management.  Students planning to do manual work may not believe they will need financial literacy or sophistication in their type of work.

The lack of financial literacy shown by this study greatly understates the magnitude of the problem because the sample excluded high school dropouts and surveyed only 2.9 percent who planned no additional education.  Since students who were not college bound did substantially worse than the others, the study may have omitted as many as a third of all 18-year-olds who will not graduate from high school or who plan no additional education.  Had more of these students been included, it would have caused a further decrease in the overall results.  Therefore, the plan of the Michigan Jump$tart Coalition to encourage the teaching of financial literacy in all grade levels is critical.

The results are even worse than they appear.  The fact that students were able to choose correct answers just less than half the time, on average, was due in part to a number of questions that tested terminology rather than reasoning ability.  For example, 70.7 percent knew that salaries, wages and tips constituted primary sources of income for most people between the ages of 20 and 35, but only about one-third (33.7 percent) realized that income taxes would at least double if a person’s income doubled (from $15,000 to $30,000 per year).  The inability to apply the concept of income tax progressivity hinders the decision making ability of young labor force entrants who may tend to over commit themselves in anticipation of overestimated future take-home pay.


Unfortunately, common parental methods used for instructing children in personal finance are shown to be mostly ineffective.  One hypothesis, contends that teenagers who receive a regular allowance gain increased knowledge of personal finance.  In our study, there was very little difference among students who received a regular allowance (50.4 percent), allowance for chores (51.3 percent) and no allowance (48.3 percent). Also the effect of the frequency of parents discussing money matters with their children was small (rarely 46.2 percent; sometimes 52.3 percent; often 49.9 percent).  However, students whose parents never discuss money matters with them scored the lowest (43.1 percent). Another commonly held belief is that teens learn most from their friends.  Our study found that students learned most about managing money at home (51.2 percent) and from experience (51.6 percent) and the least from friends (32.7 percent).  These findings underscore the importance of parents discussing money management with their children and modeling financial responsibility for them.

The effectiveness of other practical, experiential strategies for developing financially savvy teens is ambiguous.  For instance, students who own stocks in their own name (51.3 percent) were slightly more financially sophisticated than students who don’t own any stock (48.4 percent) or where their stocks are in their parents name (48.1 percent).  Students who have both savings and checking accounts had higher average scores (52.6 percent) than those with checking only (45.3 percent), savings only (50.9 percent), or no financial institution account (40.5 percent).   Conversely, students who owned mutual funds in their own name (50.2 percent) were less sophisticated than those whose mutual funds were in their parents name (55.2 percent).